Middle East Conflict to Weigh on Global Growth – World Bank

The World Bank Group has warned that escalating tensions in the Middle East are expected to significantly slow global economic growth, driving it to its weakest level since the COVID-19 pandemic, according to its latest Global Economic Prospects report.

The report projects global growth to decline to 2.5 percent in 2026, down from 2.9 percent in 2025, as higher energy prices, rising inflation and tighter borrowing conditions continue to weigh on economic activity. Growth is expected to recover modestly to 2.8 percent in 2027 but remain below the long-term average recorded in the 2010s.

Broad-based downgrades across global economies

According to the report, growth forecasts have been downgraded for about two-thirds of economies compared to projections made in January. The World Bank noted that weak growth in developing economies has stalled progress in narrowing the income gap with advanced economies.

It warned that by 2028, developing economies excluding China and India may experience nearly a decade without meaningful convergence toward advanced-economy income levels.

World Bank Group President, Ajay Banga, said developing countries continue to face compounding shocks over the past decade, urging policymakers to balance short-term stability with long-term growth.

“The impact differs by country, but the basic test is the same: protect people and preserve stability today, without giving up on growth and jobs tomorrow,” he said.

Energy shocks and inflation pressures

The report highlights severe disruptions in global energy markets, including the closure of the Strait of Hormuz, which has tightened oil supply and pushed prices higher.

Brent crude is projected to average around $94 per barrel in 2026, approximately 36 percent higher than in 2025, assuming disruptions ease later in the year. Fertilizer prices are also expected to rise sharply, increasing food price pressures globally.

As a result, global inflation is forecast to rise to 4.0 percent in 2026, up from 3.3 percent in 2025. In a more severe downside scenario involving deeper supply disruptions and financial stress, global growth could fall to as low as 1.3 percent, while inflation could rise to 4.4 percent.

Impact on developing economies

Growth in developing economies is projected to slow to 3.6 percent in 2026 from 4.4 percent in 2025, before recovering to 4.2 percent in 2027. The report notes that commodity-dependent economies remain particularly vulnerable due to volatile revenues and weaker fiscal buffers.

Sub-Saharan Africa is also expected to experience slower growth, driven by inflationary pressures, especially rising food prices linked to fertilizer shortages and higher input costs.

In contrast, South Asia is expected to remain the fastest-growing region, although growth is projected to slow from 7.0 percent in 2025 to 6.3 percent in 2026.

High debt and fiscal constraints deepen risks

The World Bank also raised concerns about rising debt levels in developing countries, which have increased from below 40 percent of GDP in 2010 to more than 70 percent today. It warned that higher debt levels are increasingly associated with rising borrowing costs, particularly in vulnerable economies.

The report stressed that fiscal space is narrowing, limiting governments’ ability to respond to crises and invest in long-term development priorities such as infrastructure, health and education.

It recommended stronger fiscal frameworks, improved domestic revenue mobilisation, and the use of sovereign wealth funds with clear stabilisation mandates to help manage commodity price volatility.

Global response and support measures

In response to the crisis, the World Bank Group says it is making between $50 billion and $60 billion available through existing financing instruments, including $25 billion in pre-arranged support. This funding is expected to support social protection systems, liquidity for firms and fiscal stability in affected countries.

The institution also indicated that support could be scaled up to between $80 billion and $100 billion over 15 months if conditions worsen.

Deputy Chief Economist Ayhan Kose said the crisis should prompt renewed focus on structural reforms and private capital mobilisation to support job creation and resilience.

“The conflict has taken a toll on global activity, but every crisis also brings an opportunity,” he said.

Outlook

While global growth is expected to remain weak over the medium term, the World Bank emphasized that policy reforms, fiscal discipline and targeted investment will be critical in helping developing economies navigate rising global uncertainty and avoid prolonged stagnation.